Final answer:
A utility function enables us to determine the utility-maximizing bundle of goods, the utility from all combinations of goods, and the bundles yielding any given level of utility. It fundamentally guides decision-making in aligning consumption choices with maximum satisfaction within budget constraints, including decisions on the trade-offs between leisure and income. Option 2) ii. the utility derived from all combinations of goods and services may be determined.
Step-by-step explanation:
From a utility function, we can determine several key aspects relating to consumer choice and preferences. Firstly, the utility-maximizing bundle of goods and services a consumer will purchase can be identified. This involves finding the combination of goods and services that delivers the highest utility subject to the consumer's budget constraint. Consumers can achieve this by maximizing total utility across different choices, or by using the marginal utility approach, where one compares the marginal utility gains and losses of adjusting quantities of goods.
Secondly, a utility function provides information on the utility derived from all combinations of goods and services. This allows one to understand how different combinations of products contribute to overall satisfaction. Lastly, utility functions also help in identifying bundles that yield a given level of utility, known as indifference curves. These are the sets of all possible combinations of goods and services that provide the consumer with the same level of satisfaction or utility.
When seeking to maximize utility for choices involving leisure and income, the consumer applies the same principles. They compare the trade-offs between having more leisure time against earning more income, by considering the marginal benefits of each. The optimal choice will be where the ratios of marginal utility to price (or cost) for leisure and income equate, maximizing the overall utility within the constraints of a budget or time.